WOCCU Meets with the Reserve Bank of India on Cooperative Banks' Reform

March 22, 2006

Phone: (608) 395-2000

At the invitation of the Reserve Bank of India,
Dave Grace, Senior Manager of Association
Services, World Council of Credit Unions, Inc.
(WOCCU) recently met with the Reserve Bank
regarding potential reforms for the country's over
100 years old cooperative banking sector. In
meeting with Deputy Governor, Ms Usha Thoroat of
the Reserve Bank of India and her senior staff,
Mr. Grace discussed governance and competitive
pressures faced by financial cooperatives. The
meeting was a continuation of an ongoing dialogue
between the two organizations regarding
appropriate prudential standards and regulatory
structure for cooperative banks in India.

Hamstrung by not being granted with full
regulatory power to remove officers/board and to
force mergers/liquidations, the Reserve Bank of
India is hesitant to allow the urban cooperative
bank sector to expand and grow. These limitations
include a current ban on opening any new branches
of existing coop banks, chartering of new coop
banks, high liquidity ratios (making profitability
challenging) and existing of a second tier
wholesale cooperative bank for the sector. This
structure is in part the result of coop banks
having only state (provincial) level legislation
and registration, a federal law for coop banks
does not exist.

Separated into urban cooperative banks that are
more community based and rural cooperative banks
that are more top-down driven with government
involvement, together they serve over 330 million
clients with a combined $27 billion in assets,
giving India the largest financial cooperative
sector in the world in terms of individuals
served. While generally well capitalized, both
the urban and rural cooperative banks are plagued
with non-performing assets of 23 percent and 36
percent respectively.

During his trip Mr. Grace also met with
representatives of several cooperative banks and
federations of cooperative banks. He also visited
the National Agriculture and Rural Development
Bank, which has supervisory authority for the top
two tiers of the rural cooperative banking sector.

World Council of Credit Unions is the global trade association and development agency for credit unions. World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions' financial performance and increase their outreach.

World Council has implemented 300+ technical assistance programs in 89 countries. Worldwide, 68,882 credit unions in 109 countries serve 235 million people. Learn more about World Council's impact around the world at www.woccu.org.